Estimation and costing in construction


Before initiation of any construction activity and project it is required to know the probable cost of construction, this is known as estimated cost. Various measures are adopted to keep the cost of work below the estimated cost like by changing the specification, work reduction, doing value engineering etc. This further proves the need of estimation for engineers. In order to prepare estimate of a building, various work items are quantified and from these quantities costing for the building or project is calculated. Estimation is basically a technique of computing and calculating quantities of various work items and activities of the construction work and to find out the expected expenditure to be incurred on a particular construction work or project.

Estimation is done at various phases and design stages of a construction project during the project life cycle. Data required for the respective stages for estimation includes drawings, specifications and rates of the construction items.

History: For someone to build any type of structure in the ancient times, one used to see whether sufficient funds are available to finish it by counting various costs required for the construction project. Eventually owners and contractors realized that there was huge amount of calculations involved in counting the cost i.e., doing estimation for a construction project. This resulted in employment of dedicated resources by each stake holders to perform the job. Over the time around 1859 the term Quantity survey was coined for this job and the professionals employed for the job were called as Quantity surveyors.

Current scenario: These professionals in today’s time are known by many names like Estimators, Cost managers, Cost consultants, Commercial managers, QS consultants etc. Every construction firm have dedicated on-site and off-site departments like costing and budgeting, estimation, billing, contracts and tendering etc. Estimate of a building in today’s time is done from cad files and captured in excel, moreover a lot of software are also available in the market which are used to extract estimate of a building.

Role of a Quantity surveyor in preparation of estimate of a building: One of the most basic and important roles of a quantity surveyor is to do quantity takeoffs from given drawings of a building to prepare estimate of a building. Various work activities like earthwork, civil, finishes, services quantities etc. are being quantified by a quantity surveyor. Another important role of a quantity surveyor in preparation of estimate of a building is to make various BOQs for various work packages. The prepared BOQs are further used for exercises like preparation of pre-tender estimates and further these BOQs are attached with tender documents for inviting bids for the respective work package of the project. Next role of a quantity surveyor in preparation of estimate of a building is to make the cost plan of the building which is further used for the preparation of cash flow planning. Further a quantity surveyor is expected to work out best feasible methodology for various construction work packages through exercises like value engineering and cost benefit analysis during preparation of estimate of a building. The main purpose of doing these exercises is to reduce either or all of cost, time and resources. While preparation of estimate of a building a quantity surveyor also has to take care of procurement strategy i.e., he should be able to recommend the best strategy and perform various activity in the tendering process. The activities include preparation of tender documents, inviting various tenderers, doing rate analysis and much more. A quantity surveyor is also referred as billing engineer wherein one has to prepare RA bills on site for the contractor by measuring executed works on site and preparing joint measurement records along with the billing engineer of the construction owner or client. Another major role of a quantity surveyor is to do reconciliation activity wherein one has to compare the difference between the theoretical quantity and actual consumed quantity, if the difference between them is more than the pre-determined limit then audits are to be performed. This exercise is done in order to prevent wastages on site and prevent pilferage activities on site if any.

Scope of a quantity surveyor in a construction project: The first scope of a quantity surveyor in preparation of estimate of a building is to assess feasibility at various design stages. A construction project broadly goes through phases like pre construction phase, execution / construction phase and project close out phase. These phases are further subdivided into design stages like concept design stage, schematic design stage, detail design stage, tender stage, good for construction stage and as built stage. Through out these stages a quantity surveyor works out feasibility at all these stages to make sure that the project does not go over budget. Second scope of a quantity surveyor is to prepare cost plan and do its cash flow planning so that the construction owner can make necessary financial preparation. Next scope of work is to work out best methodology in terms of feasibility for various construction work packages to save either or all of cost, time and resources. Another scope of a quantity surveyor is to prepare procurement reports which helps procurement manager to place order well in time once the requisition is raised. This helps supplier get sufficient lead time and in turn construction project is run in a very smooth manner. Another scope of a quantity surveyor is to assist the construction team in finalization of vendor for various construction works of the project through tendering process. Another role of a quantity surveyor is to do cost tracking and controlling which helps put the construction project well within the budget and in case any works package is going over budget corrective measures are taken in time to prevent further loss to the project. Another scope of a quantity surveyor is to do reconciliation for the construction project to prevent wastages and pilferage activities on site. Another scope of a quantity surveyor is to do bill finalization and settlement at the end of the project, this helps avoid any dispute among the parties.

Benefits of doing Quantity survey for a construction project: Initial benefit is that a consolidated report of quantity survey gets ready on day one which helps the team to finalize on construction budget, the construction owner accordingly gets ready with the required funds for the project. Next benefit is that a prepared quantity survey report for the construction report is used for uploading in the RERA portal in case of real estate project like wise in case of infrastructure related projects initially a detail project report is prepared wherein estimation report is required for approval from concerned authority. Another benefit for preparing estimate of a building is that it helps the construction owner to send the same report across to various financial authorities like banks, NBFCs, and various fund houses for loan sanction purposes. Another benefit of doing quantity survey is that it helps the construction owner to understand the cost to complete the project and according can price it for further sale purpose. Another benefit of doing quantity survey is technology and methodology finalization of various construction work packages through exercises like cost benefit analysis and value engineering. This eventually helps save a lot of cost, time and resources for the construction works. Another major benefit of doing quantity survey is that it helps the construction team avoid cost overrun in their project. By doing various measures like cost tracking and controlling cost overrun can be prevented. Almost 70% of the global construction project face the issue of cost overrun hence doing estimation for the construction project is very crucial. Another benefit of doing quantity survey is that it helps maintain transparency amongst various stake holders and further minimize disputes between various parties majorly between client and contractor.

Methods of estimate: From project management point of view various tools are used to prepare estimates like expert judgement, analogous estimate, parametric estimate, three-point estimate, bottom-up estimate, data analysis. A quantity surveyor of the project management team decides which of the above method should be used depending on the stage of the project and the available data.

Expert judgement technique is used in the concept stage of the project. Experienced professional with expertise in estimation techniques along with historical data assist in preparation of cost estimation. Based on expert opinion further methodology for estimation is decided and line of action is formulated. Usually, a cost consultant is consulted on these lines for a construction project.

Analogous estimate method is used to find out cost for a particular activity or work package wherein historical data is used as benchmark for costing purpose. This technique uses parameters like duration, size and budget from similar previous projects. It is also referred to as gross value estimating approach wherein as per project complexities cost is adjusted. Analogous estimate method is used when there is limited amount of information and data is available for the project. This method is usually less time consuming and less costly as compared to other techniques. Analogous estimate method can also be used along with other methods of estimate i.e., it can be applied to part works or to the complete project as per the requirement on site. This method is reliable when the project of similar nature is referred and the project team has the needed expertise.

Parametric estimate technique uses algorithm-based calculations to ascertain the cost based on various project parameters and historical data. This technique adopts statistical relationship between various variables of the project and historical data to calculate the estimate of a building. Parametric estimate method can also be used along with other methods of estimate i.e., it can be applied to part works or to the complete project as per the requirement on site. This method consumes more time relatively. Depending on the sophistication and underlying data built into the model this technique can produce higher levels of accuracy.

Three-point estimate technique is used to ascertain estimation of uncertainty and risk. This technique consists of three types of estimates which are used collectively to come up with a range of costs. The three forecasts that this technique uses are most likely (M), Optimistic (O), and pessimistic (P). In most likely forecast the cost estimation is based on practical efforts. In optimistic forecast the cost estimation is based on the best-case scenario. In pessimistic forecast the cost estimation is based on the worst-case scenario. Based on the estimates obtained from above three types of forecast we can further calculate the expected cost, cE using a formula. There are two formulas which are popular to ascertain the cE value for a project, triangular distribution and beta distribution.

Triangular distribution E = (O+M+P)/3

Beta distribution E = (O+4M+P)/6

Bottom-up estimation technique: Bottom-up estimating is a method of estimating project amount or cost by aggregating the cost estimates of the micro level components of the work break down structure. The work within the activity is further worked out into more detail when an activity’s cost cannot be estimated with a reasonable degree of confidence. The detail costs are estimated using this technique. These estimates are then aggregated into the total quantities for each of the work’s costs.

Report structuring: A quantity survey report for a construction project is broadly bifurcated in following parts civil works, bar bending schedule, finishing works, services, infrastructure works and non-construction aspects.

Civil works is further bifurcated into RCC works, masonry works and plaster works. BBS i.e., bar bending schedule is also calculated under the RCC works. Finishing works is also bifurcated as water proofing work, flooring work, joinery work, painting work, fabrication work and miscellaneous work. Services report includes plumbing work, fire fighting work, electrical work and HVAC work. Non construction aspect includes overheads, establishment charges, sales & marketing, finance charges, sanction & liaison charges, escalation and contingency.

Outline plan of work for a quantity surveyor in a construction project at various stages

  1. Feasibility stage
    1. Appraisal: Assist with preparation and identification of various options & advise the construction team with programme for the project. Provide initial advice on the design alternatives and cost aspects of site, including working capital cost studies required for the project. Assess risk from cost point of view. Prepare cost report on preferred solution.
    2. Strategic briefing: Assist with identification of project requirements, specifically with regards to value management, cost/cash-flow constraints, costing and procurement. Assemble the complete life cycle costing for the project.
  2. Pre construction period
    1. Outline proposals: Assess probable constraints from economy point of view.  Participate in development of Project Brief.  Advise on effects of costs of energy and design options.  Prepare initial cost plan and its cash flow projection. Advise on the best fit procurement options.
    2. Detailed proposals: Evaluation of outline proposals, cost studies to be undertaken to ensure compliance with the project brief.  An elemental cost plan is prepared and is updated as and when required.  After this a sign off of project brief is done, firm cost plan is prepared along with cashflow projection.
    3. Final proposals: Continuously cost of design is checked against the cost plan at various design stages.  Cost plans are updated and cashflow projections are revised as required. Procurement method is reviewed from time to time and contingency plans are kept ready for various scenarios.
    4. Production information: Cost of design is monitored continuously through out the design phase. Cost plans are updated and cashflow projections are revised as required.
    5. Tender documentation: Advice on contract conditions is provided for various construction work packages, to include preliminaries, contingency access & sequence. Pre -tender estimate is to be provided and cash flow projection is updated. Tender documents, including Bills of Quantities is prepared and checked for further bidding process. 
    6. Tender Action: Assist the team with pre-tender checks and enquiries. Provide the tender document sets to various bidders. Receive and collate tender documents and assist with appraisal / negotiation of tenders.
  3. Construction period
    1. Mobilization: Assist the team for preparation & compilation of tender documents.  Provide awarded and priced tender documents for issuance on site.
    2. Construction to post construction period: Monitor and estimate cost of proposed as well as issued variations. Preparation of valuations for various interim certificates.  Preparation of ongoing cost monitoring reports, including the cost to complete at completion.
    3. After post construction: Continuous support to for preparation of any interim certificates, and to update the cost report. Reconciliation and closure of final account and agreeing the same with contractor. Issue the same to CA & advise the construction team that scope for quantity survey in the project is complete.

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